“Short-time work proved to be a highly effective instrument in times of crisis.”

In Germany, short-time work has played a crucial role in stabilising the labour market both in the financial and the coronavirus crisis. At the same time, the administration of short-time allowance has been an enormous challenge for the Federal Employment Agency. In an interview with IAB Forum, Eva Strobel, agency manager, discusses possible approaches to reform.

Ms Strobel, how would you assess the general effectiveness of short-time work, or, more precisely, cyclical short-time allowance, when it comes to securing jobs?

Short-time allowance helps to avoid layoffs and unemployment and thus stabilises the labour market in times of crisis. It is also a flexible instrument for enterprises that allows them to retain trained employees during a crisis and therefore secure jobs even in difficult times.

When comparing the use of this instrument during the financial crisis, the coronavirus crisis and the recent energy crisis: In your opinion, did short-time work prove equally successful in all three crises – insofar as you can foresee this for the energy crisis? Or do you see any differences?

Short-time work proved to be a highly efficient instrument during the financial crisis and the Covid-19 pandemic, also due to the temporary special regulations. For instance, access to short-time allowance was easier, and there was a reimbursement of social security contributions.

The importance of the short-time allowance during the Covid-19 pandemic differs from that during the financial crisis in that almost six million people took advantage of cyclical short-time work in April 2020. This was an all-time high. At its peak, this amounted to the total hours equivalent of three million employees. Moreover, other than during the financial crisis, companies that had never before claimed short-time work had to make use of it. This was especially true for companies from the hospitality industry, the cultural and leisure sector and personal services.

And what were or are the particularities of the current energy crisis?

The energy crisis is different in that it is impossible to pay short-time allowance just because of the increased energy prices. There is economic assistance for this purpose, for example, the electricity and gas price brake. In case of a disruption of the supply chains due to increased energy prices, however, payment of short-time allowance is generally possible. This can be the case, for example, if a supplier decides to stop production because it requires a lot of energy. This then causes a work reduction in the downstream purchasing company.

As you mentioned, the most significant use of short-time work occurred during the Covid crisis. How pronounced was the risk that, during this time, companies that had no economic future at all would be supported?

During the Covid crisis, the short-time allowance was mainly used due to official orders such as lockdowns or contact restrictions or due to disrupted supply chains. Due to these circumstances, it can largely be ruled out that companies without an economic future were kept operating artificially, so to speak, since the reasons for short-time work were predominantly not related to the financial situation of the company. However, there is another aspect to consider.

Which is?

Normally, employers bear the social security contributions incurred during short-time work alone, this was not the case during the Covid crisis. In the absence of a crisis, these contributions have to be paid by the firm thus representing a co-payment by the firm. This thus prevents deadweight losses.

How do you assess the total expenditures for short-time allowance caused by the pandemic?

The high use of short-time allowance due to the pandemic continues to cause a high work load in verifying the correctness the final settlement of total payments to the firm when the use of short-time work ends.

The three-level procedure for notifying and settling short-time allowance during the coronavirus crisis was also a significant burden regarding the bureaucratic effort and the staff needed, both for the Federal Employment Agency (Bundesagentur für Arbeit, BA) and for companies. Do you see any possibilities to make the use of short-time work even more efficient in this respect?

Processing the short-time allowance during the Covid crisis did indeed place a massive burden on the BA. This is due to the mass use of the  short-time allowance and the long periods of benefit receipt but also to the three-level procedure you mentioned.

In order to reduce the administrative burden to a manageable level in the future in the event of renewed mass use, we need, from the BA’s point of view, a suitable instrument for crisis situations. Under the current institutional rules, processing the short-time allowance claims is only possible if the BA strongly reduces other services it provides, especially in the field of placement and counselling.

Abuse of benefits only occurred in individual cases.

Which steps did the BA take during the Covid crisis to prevent mass abuse of short-time allowance?

I would like to emphasise that abuse or attempted misuse of benefits only occurred in a small number of cases. In order to ensure that benefits were granted in compliance with the law, we implemented a comprehensive package of measures aimed at preventing this. This allowed us to detect suspected cases before any actual harm occurred.

Section 421c SGB III already includes a special regulation concerning short-time work. According to this, you can waive a final examination if the total amount paid out does not exceed EUR 10,000. What is your opinion on these simplifications in processing the final settlements for short-time allowances?

The BA welcomes this legal regulation. Without it, the total of 1.126 million final settlements would probably only be fully completed in 2024. With this special regulation, we can complete the final settlements  much earlier and provide legal certainty for all parties involved at an early stage. Regardless of the lower bound introduced, however, a final examination must be carried out as required in cases of suspected benefit abuse or at the request of the employer or the works council.

In your opinion, are further simplifications necessary?

During the Covid crisis, we gained a lot of experience and knowledge in terms of short-time allowance. We have been collecting and evaluating this as part of an extensive lessons-learned process. This process and its results remain to be seen.

Crisis short-time allowance should add to the previous short-time allowance, not replace it.

Where do you see the opportunities and limits of an emergency short-time allowance?

A short-time allowance for crisis situations should only be invoked under special circumstances when there is a mass use of short-time allowance or an acute threat of such a use which the BA cannot manage applying the normal procedures. These circumstances may arise due to government intervention, for instance, lockdowns or government allocation of gas due to an extreme gas shortage. An emergency short-time allowance for crisis situations should only be used for a limited period of time. Procedural facilitations such as simplified payment procedures, lump-sum amounts and reduced obligations for verification of the final settlements should, therefore, only be introduced in such exceptional situations. A short-time allowance for crises should complement the regular short-time allowance, not replace it. And unlike regular short-time allowance, it should be financed out the federal government’s budget, not by funds from the unemployment insurance.

Policy-makers suggest that companies also use periods of short-time work to further train their employees during this time. Which incentives exist for this?

Until the end of July 2023, companies will be reimbursed for half of the social security contributions for employees who are on short-time work and at the same time participating in further vocational training, according to Section 106a SGB III. For further vocational training that were started during short-time work, the course fees are additionally subsidised until the end of the program under certain conditions and depending on the size of the company. This also applies if further vocational training continues beyond the entitlement period to the short-time allowance.

In May 2022, less than 1 percent of companies on short-time work used it to train their employees.

So far, however, success has been minimal. Why is that?

That is correct. In May 2022, the share of companies in short-time work that used this option was less than 1 percent. This is because, from the employers’ point of view, further training is often not compatible with short-time work, which is difficult to plan. In addition, due to the special regulation, all companies were reimbursed 100 percent of their social security contributions until December 2021 – i.e. regardless of whether employees on short-time work participated in any further vocational training measure.

Another reason is that for some companies periods of short-time work are often not the ideal time for further training. For instance, sometimes existential problems have to be solved first, which companies consider more urgent than further vocational training of employees. In addition, employers need to explore possibilities during short-time work to end benefit receipt as quickly as possible.

In your opinion, where should we start so that more companies on short-time work use it for the further vocational training of their employees?

In my view, employers must be offered sound advice on this topic. In addition to personal counselling, we have already extended the relevant online information and, for example, have posted an explanatory video (only in German).

Personal details

Eva Strobel was Managing Director of the “Benefits and monetary assistance” Department at the Federal Employment Agency (Bundesagentur für Arbeit) until the end of January 2023 and the former head of the Baden-Württemberg Regional Directorate.

DOI: 10.48720/IAB.FOO.20230228.02